One of the big challenges of running a successful business is reducing the amount of risk
Risk is part of the territory of running a business, even if you’re a small business.
There’s a chance that your business can shut down because of a power outage, there could be a natural disaster, or you could be hacked.
How can you minimize these risks? With careful planning and contingency plans, you can reduce the amount of risk your business takes on.
Want to learn more?
Read on for more tips to lessen your risk burden.
1. Perform a Risk Assessment
In order to reduce risks to your business, you have to understand what they are.
That’s why a risk assessment is important to your business. A risk assessment will take every possibility into account, from workplace safety to natural disasters.
You decide what the severity of the risk is and how often it can occur. You can then decide if you want to reduce, retain, avoid, or transfer the risk.
For example, if you own a gym, a potential risk is that a client can injure themselves by working out. It’s impossible to eliminate the risk, but you can reduce it by having liability waivers in place and having insurance that covers your business.
2. Have the Right Business Structure
The right business structure can also protect your business.
If you’re a sole proprietor, you and your assets can be needlessly exposed if you were to be sued or if you are unable to make payments.
In that case, you are unprotected, and people can go after your personal assets like your home or your car.
To reduce that risk, consider restructuring your company as a single-member LLC. Of course, you’re going to want to discuss this with an attorney and your accountant to see if there are any tax implications.
3. Manage Cash Flow
Cash flow is the life of your business. It’s cited as the main reason why businesses fail.
Go through your finances and figure out how much cash you have available and how long it will last. You want to have enough cash on hand to last at least three months.
You should have a plan in place in case something happens like you lose your biggest account. You should know which expenses would get cut and which ones you need to continue to pay.
4. Have Proper Insurance
Insurance is an easy way to reduce your risk and transfer that risk to your insurance company.
What kind of insurance do you need? That depends on your industry and your offerings. You may need professional liability insurance, cyber insurance, or product insurance.
You should also consider keyman insurance, which would protect your business in the event that one of your key team members can no longer work for your company.
The best solution is to work with insurance experts like Poms & Associates, who specialize in helping businesses reduce their risk by selecting the right insurance policies.
5. Have the Right Team to Advise You
Being in business required that you have expertise in legal issues, tax law, contracts law, human resources, IT, marketing, and bookkeeping.
That’s on top of the expertise you already have in your industry.
Rather than getting the necessary degrees and certifications to become an expert in each of these fields, hire the experts in each area.
As a small business owner, you might want to do all of these yourself to save money. You can’t afford to do all of these yourself.
6. Use Contracts
You might not want to use contracts because you believe that your business runs on integrity. You probably expect the same from your clients.
You should have contracts in place, especially if you’re a service provider. This can spell out the exact services to be performed, the timeline, and
You should have these drawn up by an experienced attorney to make sure that your business is protected.
7. Plan for the Worst
Perhaps one of the best ways to reduce business risk is to plan for any event. This can include cyber attacks, the death of key members of your staff, natural disasters, and on-site emergencies.
You’ll also need a PR crisis management plan for events that can harm your brand. These can range from arrests to social media posts that were in poor taste.
By being prepared, and preparing your staff, you reduce the risk of lost business and revenue.
8. Take Internet Security Seriously
Cyber attacks happen to small businesses, too. It’s not just companies like Equifax that are targeted.
Small businesses that are attacked lost revenue, business opportunities, and customers.
All it takes is one unassuming email to get clicked on and
Your business needs to have policies in place for internet security. Training employees on handling suspicious emails and websites can also prevent unwanted attacks.
9. Back Up Data
If a natural disaster were to strike, would you be able to access your data and resume business as if nothing happened?
If you properly backed up your data, chances are that you can.
There are plenty of services that provide backup data to the cloud. Microsoft’s OneDrive offers 1TB of data and Office 365 for only $6.99 a month. Dropbox and Google also offer cloud services that are inexpensive and allow you to keep your data safe.
10. Keep Accurate Records
Keeping accurate records is one way to reduce your risk in the event that your business is audited or sued.
You’ll need to have a record keeping strategy in place, whether it’s having a plan to keep digital records or a separate, secure room with paper records.
What records should you keep and how long should you keep them? Again, it will depend on your business and industry. You may be bound by HIPPA or Sarbanes-Oxley legislation to keep records in a way that complies with those laws.
Reduce Risk in Your Small Business
It’s well known that risk is just a part of running a business. Of course, you want to avoid risk at all costs, but that’s impossible to do.
You can reduce risk for your small business by taking the steps outlined above. Hopefully, you’ll never need them, but you’ll know that you’re prepared for any eventuality.
If you need more practical business advice, be sure to take a look at our blog.